Emergency Arbitration In India: Will It Work In The Indian Scenario

Key Takeaways

• Emergency Arbitration is not expressly mentioned in the Indian provisions but the legislature has made an attempt to include it in the Act.
• There have been a few cases in India that have dealt with the enforceability of an Emergency Arbitrator's decision.
• The basic purpose of Emergency Arbitration is to intervene when there is no arbitral tribunal in place or when considerable time would be lost in establishing one.
• The courts have followed suit, with a slew of recent rulings limiting the scope of judicial intervention.
• Despite these changes, most arbitration cases in India continue to be conducted on an ad hoc basis.

Introduction

The aggrieved party is mostly rendered unaided and in an irreparable situation when a remedy is delayed in case of the arbitration procedure, which is determined by the parties to the dispute, when the legal rights of the party are disputed. The importance of Emergency Arbitration has been on the rise in the past years.

A delay in the constitution of the arbitral tribunal leaves the parties to the dispute with two options to get immediate relief or faster relief. A suit can be filed before the local court for getting interim measures or one has to wait for the tribunal to be constituted, no matter how long it takes. In the long run, seeking interim measures in a conventional judicial system helps the party in determining the fate of the issue and leaves them with a secured amount in the subject matter of the dispute.

Emergency Arbitration solves the issue of seeking interim injunction from the judicial bodies in case of international arbitration, where the jurisdiction is of utmost importance. It acts as instant solution to the risk of irreparable damage. These steps work towards the maintenance of the status quo during lis pendens. Prior to the constitution of a tribunal for arbitration, the parties can seek for emergency arbitration. The award granted by the emergency arbitration procedure is enforceable to the same extent as the decree of the court, in states that have given recognition to emergency arbitration. It is used for reaching a cordial settlement which is suitable for both the parties in dispute.

Even though the concept of emergency arbitration has been acknowledged and subsumed by many institutions, it is still absent in the Indian legislation. The Amendment to the Act in the year 2015 does not cover the definition of emergency award in the scope of definition of award under Section 2 (c) of the Act. The High Level Committee Report made for reviewing the Institutionalization of the Arbitration mechanism made suggestions to amend the Arbitration and Conciliation Act, 1996 to cope with the insufficiency of immediate relief in arbitration.

The various amendments in the year 2015 are evidence enough to justify the need of emergency arbitration in the country. Though interim and emergency measures can be considered as two sides of the same coin, yet the necessity is measured on different scales. The report of the High Level Committee appreciated the importance of the emergency arbitrator and recommended amendments inclusive of emergency arbitration in the 1996 Act. It proposed the provisions in India should be in consonance with the international standards which is primal to provide support to the institutions providing emergency arbitration currently.

EMERGENCY ARBITRATION PROVISIONS

Interim measures or conservatory relief can only be granted for a limited time under an emergency arbitration clause. For all intents and purposes, it acts similarly to, if not identically to, an ad hoc tribunal that has been established for a specific purpose and will be disbanded after that goal has been fulfilled or the time limit for resolving such concerns has passed. Most arbitration rules follow an 'opt-out' policy when it comes to emergency situations, which means that certain provisions will not apply in their entirety, unless the parties specifically reject "Emergency Arbitrator Provisions" in their agreement.

An Emergency Arbitrator is an arbitrator who is appointed for the purpose of an emergency arbitration. After the interim order is issued, the Emergency Arbitrator performs the following duties and becomes functus officio:

The Emergency Arbitrator will set up a schedule for the review of the application for emergency relief as quickly as feasible but not later than two business days after being appointed. This schedule must give all parties a reasonable opportunity to be heard. As an alternative to a traditional hearing, it may provide for procedures through telephonic conference or written submissions.

Due to time constraints, the emergency arbitrator may never actually hear or speak with the parties, with the exception of a few crucial clarifications, and must instead make his decision based on the documents and written submissions that have been presented to him. Timelines vary depending on the International Arbitration rules, but an emergency arbitration typically takes eight to ten days from the time the application is filed to the time the award is issued.

The Emergency Arbitrator shall have all of the powers conferred on the Arbitral Tribunal by these Rules, including the authority to rule in his own jurisdiction and to order any party to take any interim measures of protection that the arbitrator deems necessary in light of the dispute's subject matter.

Asset freezing orders, both prohibitive and mandatory injunctions, orders for the preservation and examination of evidence, preventative measures to avoid the misuse of intellectual property or confidential information, and anti-suit injunctions are among the types of interim orders.

Despite the fact that the emergency arbitrator's order is not binding on the arbitral tribunal with respect to any question, issue, or dispute resolved, the interim order must be definitively varied, discharged, or revoked, in whole or in part, by a subsequent order or award issued by the arbitral tribunal, either on the request of any party or on its own initiative.

Changes to the Act

The Law Commission's 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 proposed a modification to Section 2(d) of the Act to recognise emergency arbitrations. This change was made to ensure that institutional rules requiring the appointment of an emergency arbitrator, such as the SIAC Arbitration Rules, the ICC Rules, or any other regulation, be granted statutory recognition in India:

“Section 2(d): Arbitral tribunal means a single arbitrator or a panel of arbitrators, and includes, in the case of an arbitration conducted under the rules of an institution that provide for the appointment of an emergency arbitrator, that emergency arbitrator.”

The Arbitration and Conciliation (Amendment) Act, 2015 was intended to recognise this global shift and include provisions for the appointment of an Emergency Arbitrator. The 2015 Amendment, on the other hand, failed to integrate the Law Commission's advice and makes no provision for emergency arbitration.

The Arbitration and Conciliation (Amendment) Act, 2019

The Amendment to the Act includes amendment to Sections 2, 11, 17 and various other provisions of the Act to ensure proper usage and reduction on corruption practices in aid of the Act. It called for the establishment of Arbitration Council of India and elaborated the composition, function and power of the said Council in brief.

The Arbitration and Conciliation (Amendment) Act, 2021

The Bill has been proposed in the Parliament to amend the original 1996 Act and is deemed to have come into force on 04 November 2020. The Bill proposes omission of the Eighth Schedule, amendment to Section 36 of the Act and substitution of a new Section in place of Section 43J of the principle Act. The Arbitration and Conciliation (Amendment) ordinance, 2020 is to be repealed in the Act. The statement of objects and reasons of the Bill clarifies the need to ensure the opportunities given to the stakeholders and also addresses the issue of corrupt practices in securing contracts or arbitral awards. It also targets to attract eminent arbitrators of international commercial arbitration to the country.

ENFORCEABILITY IN INDIA

Despite the fact that the term "emergency arbitration" is not included in the modified Arbitration and Conciliation (Amendment) Act, a new trend has evolved in which arbitration institutions are attempting to include the term "emergency arbitration" into their rules and procedures. Despite the fact that the Indian arbitral institutions are not statutorily sufficient, they have created rules that are nearly identical to the major international arbitration rules.

Under Section 17 (2) of the Act, an emergency award for arbitrations held in India is likely to be implemented, subject to judicial intervention and interpretation. In Raffles Design International India Pvt. Ltd. & Anr. v. Educomp Professional Education Ltd. & ors., the Delhi High Court decided that an emergency award in an international arbitration situated outside India is not enforceable in India. If an emergency award is recognised in India, it will be especially beneficial to parties whose assets are located in a jurisdiction that recognises emergency awards.

Emergency Arbitration can save you time and money by allowing you to apply to a single venue in many jurisdictions for a single quick relief. It saves time compared to local court proceedings, and the results of proceedings before an arbitral tribunal are more reliable than those in a local jurisdiction. It also establishes a standard of conduct for the parties. Because an emergency award takes precedence once the arbitral tribunal is formed, the parties are more likely to follow it. It has, in reality, confirmed the claim of a party seeking immediate relief in a number of scenarios. The Bombay High Court granted temporary relief to the party in the case of HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Ltd., similar to the emergency arbitrator in SIAC. As a result, emergency arbitration can help the parties obtain additional relief from the local courts and the arbitral tribunal more quickly.

The need of including a provision for "emergency arbitration" in the Arbitration & Conciliation Act, 1996 has been proven by the findings of the High Level Committee and the 246th Report of the Commission on "Amendment to the Arbitration and Conciliation Act, 1996." India moved a stride forward towards arbitration with the judicial convergence of the Act and the Arbitration & Conciliation (Amendment) Act, 2015. As a result, an emergency arbitration clause will be helpful in resolving issues that require immediate resolution in arbitration proceedings. It will help India's arbitration industry in growing while reducing court intrusion in the process. It will also be a step toward pushing India to work towards becoming a global arbitration hub by harmonising existing laws and rules with international arbitral rules.

The case of HSBC involved an arbitration agreement in which the parties had reserved their right to seek interim relief in India's national courts, notwithstanding the fact that the arbitration was held outside of India. The parties went to the EA in Singapore, where the party seeking to enforce the order in India received a favourable ruling. While upholding the Emergency Arbitrator's award and granting temporary relief, the Bombay High Court noted that the petitioner had not violated any mandatory enforceability requirements because it was not attempting to have the interim award directly enforced. It is important to highlight that the parties' subject agreements were signed before the BALCO decision, hence the ratio decidendi of BALCO did not apply in this case.

Educomp Professional Education Limited & Ors. v. Raffles Design International India Private Limited & Ors.: The case was concerned with an arbitration agreement that was controlled and construed according to Singaporean law. The parties went to the Singapore-based EA, which issued an interim order that was later implemented in the High Court of the Republic of Singapore. The party who received the favourable ruling thereafter filed an application for interim remedy under the modified Section 9 of the Arbitration and Conciliation (Amendment) Act, 2015, stating that the other party is acting in violation of the Emergency Award's directions. While upholding the maintainability of such petitions, the Delhi High Court emphasised the importance of the modified Section 2(2) of the Act. The modified act's addendum to Section 2 (2) has broadened the scope of the Court's powers to give interim relief, as Section 9 now applies to international commercial arbitrations, even if the arbitration takes place outside India. It is important to emphasise that the parties entered into the relevant agreements after the BALCOdecision.

CONCLUSION

The order of the emergency arbitrator will be in the form of an interim award, which the parties must follow. If a party fails to comply with such an order, it may be enforceable in nature, under the terms of various national laws, depending on the discretion of national courts and national legislation that may or may not include provisions for emergency arbitration.

Although, in light of injunctions in arbitration processes, emergency arbitration serves as a turning point for the worldwide scenario, India still awaits full statutory recognition of EA. Prima facie, taking into consideration various advantages and disadvantages, it can be safely concluded that emergency arbitration is the need of the hour. Further, such type of arbitration works in interest of both the parties thus, creating a win-win strategy, which is one of the objectives behind alternative dispute resolution. But with respect to an adversarial judicial system as in India, where notions of full-proof evidence is the basic requirement, interim/partial/temporary orders given in Emergency arbitration shall hold less value thus, a fast track mode of arbitral trial should be followed in such a set up.